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Discussion Starter · #1 ·
General question but could very well apply to a Volt as my wife and I are considering picking up a lease transfer off LeaseTrader dot com or similar for her.

Here in TX, when you buy a car (new or used), you have to pay the 6.25% "sales and use" / property tax on the purchase price. I know that in many other states, there's a similar tax. I have seen on Lease Trader how sometimes people will have the sales tax rolled into the monthly lease amount, bumping the lease from say $300/mo to $380/mo for example.

From my primitive understanding of the TX tax law, when you go to title a leased vehicle in TX that was originally leased in another state, if you've already paid sales tax on that vehicle, then you only have to pay any difference between what you would owe if you'd leased it in TX, vs the other state. Example: $40k car, in TX you'd have to pay $2500 sales tax. In California, say it's 7.5% and you pay $3k cash up front at lease start. Since $2500 < $3000, you've already paid more in tax than TX would have charged you, so you don't owe anything extra beyond title and registration fees.

First off, can anyone actual confirm this works the way I think it does? Anyone who has done a lease transfer from one person in another state (say, CA or MI where most of the Volts on LeaseTrader seem to be)? I don't even want to waste time looking at a lease transfer for 18 to 30 months if I have to pay $2500 in taxes to the state when I get it here.

A twist on this is the situation I mentioned, where the taxes are built into the lease amount. From what I understand, the sales tax is actually billed to the leasing company, but of course they pass it on to the lessee and pack it into the monthly payment instead of making you pay it all up front (and charge you interest on it of course). In this case, say someone takes out a 36 month lease and owes $3600 in sales tax (just to make the numbers easy). Then they wind up with $100/mo on the lease payment as taxes. Just because you are leasing it doesn't mean you get out of paying the tax amount if you transfer it to someone else, so if I picked up someone else's lease after 6 months, I'd get to pay the remaining 30 months worth of tax. What I'd be afraid of is the state of TX looking at the lease papers and saying "$0 was paid in taxes at lease start, so you owe the full amount" without taking into consideration the $100/mo baked into the lease. Then I'd have to pay my taxes AND the first owner's tax, and that would double suck!

Any insight/experience here is appreciated. I'd really like to find a suitable lease transfer for my wife to drive for the next couple years, but this tax issue has me greatly concerned. So far as I can figure, the only possible way to get around the issue is to keep the car titled in the state it's in - I can do this, sort of, because I have family in both CA and MI, but I'd rather not resort to these shenanigans. Thanks!
 

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This is a great question which I've never thought of. No idea what the answer is. As a legal matter, the leasing company owns the car so there is no change of ownership when you assume the lease. Thus the question is how Texas would treat the transfer of a vehicle from another state to Texas. Usually the owner -- in this case the leasing company -- gets credit for the sales taxed paid in the state where the car was purchased. (This is your example of buying a car in CA). Since those taxes are part of the monthly payments, if the taxes were the same there shouldn't be any difference. However, if the taxes in the originating state were less or more, more or less tax might be owed and the monthly lease payment might be changed.

The only way to know is to ask the leasing company once you have the details of the lease. Note that you'd want to contact the leasing company in any event if for no other reason than to know if it permits the assumption.
 

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Discussion Starter · #3 ·
Good point, Don. I made the mistake of actually calling my local tax assessor/collector office and asking this question. The response was "It's a new lease, you have to pay the full sales tax amount on the ORIGINAL MSRP." I tried to explain to the woman (who refused to listen to anything) that it was NOT a new lease, just a transfer, and that the title was not changing names as it would still be in the name of the lease company. I wanted to smash my head into the wall by the end of the phone call, seriously.

I should just call Ally and give them a specific example or two and see what they say. I figured at the very least, since the transfer of lease is happening technically in the originating state, and I am then just transporting my leased car from original state to TX, the how I got ahold of it should be somewhat irrelevant, aside from the question of how much tax was involved when the lease was begun.
 

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I'm curious, in CA does the leasing company actually pay the full sales/use tax up front to the state, or is it collected and paid monthly as the lease goes on?
 

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Lessee pays the sales tax monthly based on the monthly payment to the lessor.

John
Yes, but is the lender paying the sales tax to the state up front and then collecting from the lessee piecemeal or is each small tax payment bent sent to the state as it is collected?

I ask because I've always thought it unfair here in Texas that the lessee has to pay tax on the full value of the car, even though they are only paying for a portion of it and I wonder if the lender even pays any tax at all here.
 

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Yes, but is the lender paying the sales tax to the state up front and then collecting from the lessee piecemeal or is each small tax payment bent sent to the state as it is collected?

I ask because I've always thought it unfair here in Texas that the lessee has to pay tax on the full value of the car, even though they are only paying for a portion of it and I wonder if the lender even pays any tax at all here.
I know for my C-Max lease, full sales tax was charged at the time of lease and rolled into the lease payments. Maryland is one of the states that charges full tax on the negotiated price, regardless of whether its a lease or purchase. I am also curious how taxes are handled in a transfer.
 

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Discussion Starter · #8 ·
As far as I can tell, the lender just rolls the tax amount into the amount being used as the starting value for the lease. The monthly payments are a formula involving the delta from starting price to "residual" (a magic number they guess the car will be worth at lease end assuming you don't trash it), with some interest baked in for fun and profit. The state gets their cut right away, you can be sure of that. If you default on the lease, they lose more money than if you'd paid all the taxes out of pocket up front, but they collect interest on the tax amount to offset that risk.
 

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You can roll the taxes into the capitalized cost of the lease in Texas too; it's just clearly called out that YOU are paying Texas the 6.25% tax. The monthly payments to Ally have no explicit sales tax on them. From prior discussions here, I assume that in CA (and other places) each payment has sales tax called out. Given that, I'm wondering if after 24/36 months in CA you would have paid only sales tax on the lease payments you've made - because in TX, you've paid the entire $2000+ tax bill even though you don't own the car - regardless of if you paid it up front or spread it out over the lease term.

i.e.: Given a $35,000 selling price on a 24 month, $300/mo lease, assuming 6.25% tax rate (which is probably low for CA):
  • In TX, you pay $2187.50 in tax (plus interest if you roll it in)
  • In CA, I assume you only pay $450 in tax ($300 * 24 * 0.0625)

Is that accurate?

PS: Sorry to take this a bit off topic - will try to bring it back around to the transfer question.
 

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Discussion Starter · #10 ·
You can roll the taxes into the capitalized cost of the lease in Texas too; it's just clearly called out that YOU are paying Texas the 6.25% tax. The monthly payments to Ally have no explicit sales tax on them. From prior discussions here, I assume that in CA (and other places) each payment has sales tax called out. Given that, I'm wondering if after 24/36 months in CA you would have paid only sales tax on the lease payments you've made - because in TX, you've paid the entire $2000+ tax bill even though you don't own the car - regardless of if you paid it up front or spread it out over the lease term.

i.e.: Given a $35,000 selling price on a 24 month, $300/mo lease, assuming 6.25% tax rate (which is probably low for CA):
  • In TX, you pay $2187.50 in tax (plus interest if you roll it in)
  • In CA, I assume you only pay $450 in tax ($300 * 24 * 0.0625)

Is that accurate?

PS: Sorry to take this a bit off topic - will try to bring it back around to the transfer question.
I can only guess based on the lease payments I've seen online, but I'm pretty sure in CA it works the same as in TX, but with higher rates. They don't charge you tax on only the depreciation amount that you're paying each month ($300 in your example) times the number of months. The full sales price is taxed at initial titling (to lease company in this example), and you either get to pay it out of pocket or roll it into the monthly lease payments (which is how a Fiat 500e goes from $199/mo to $287/mo - $88/mo in taxes * 36 months = $3168 in taxes, which is close to 10% of the $31,800 base MSRP).

I will try to find time to actually call someone like Ally Bank today and ask their lease department about this, since they should have the answer.
 

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Discussion Starter · #11 ·
Interesting answers to the lease transfer FAQs here: https://www.ally.com/help/auto/auto-contracts.html

Q: Can I transfer my contract or lease account to another person?
A: You could be eligible to transfer your contract or lease account to another person who qualifies. Please Contact Us for an application. Arizona residents: Contact your GM or Chrysler Group LLC dealer for assistance.
(I've read about how AZ NADA somehow got the state legislature to outlaw all lease transfers. D-bags.)

Q: Will the monthly payment change if I transfer my account?
A: Leases: The monthly payment amount will change because of use and personal property taxes, which are different for each state.
Contracts: The monthly payment amount could change because of the amount financed, the finance rate, and the number of payments.

The answer to this second question kinda baffles me. I suppose it's POSSIBLE in an ideal scenario, where the credit score of the person assuming the lease is way better than the originator, AND where the sales tax in the new state is way lower than in the old state, that the lease monthly payment may actually go DOWN?
 

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Discussion Starter · #12 ·
I called Ally and talked to their Lease department. I told the rep I was considering doing a lease transfer across state lines and was wondering about the tax ramifications. I explained how in TX I know you have to pay sales tax when you start a lease, and in many other states you do also, and how the moron at the local tax office told me I'd have to pay the full tax amount "because the title was changing names" (even though she's wrong about that).

In short, he said that if the lease currently has tax payments built into it, they would automatically adjust to the tax rate based on the address where the vehicle is transferred to, and when you got your registration, you wouldn't have to write a fat check for taxes, just the registration and title fees. This is pretty good news for me, since afaik, the tax rates in CA are actually higher (in general) than here in TX so it's possible the monthly payment amount could go down a few bucks, and aside from the $595 transfer fee and other commissions and transport costs, I wouldn't be out any other huge amounts.

I still think I want to actually go into the tax office and get confirmation of this with someone there (a manager/supervisor) because last thing I want to do is go through all that hassle just to get truly shafted when I try to get the registration done once I get it here.
 

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..I still think I want to actually go into the tax office and get confirmation of this with someone there (a manager/supervisor) because last thing I want to do is go through all that hassle just to get truly shafted when I try to get the registration done once I get it here.
Dante,

I am precisely pondering this, and I am in Houston. Looking at swapalease.com Volts, I see that none are available in TX. Have you gotten an answer from the tax office?
 
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